Looking at HPF

[brewer12345]

Check it out: this thing is a closed end fund which invests in preferred stocks on a leveraged basis. They use swaps and short treasury futures to reduce interest rate risk, and it sells at a 10% discount to NAV. Yields 9.5% and about 80% of income is treated as dividends for tax purposes. I see that it has a fair bit of credit risk (lots of BB names, some B, some BBB), and heavy exposure to utilities. However, it looks pretty attractive to me. Anyone see something different?

 

[saluki9]

I like JPZ better

It doesn't have the same discount (it trades at a 6% premium) but I like the strategy better.

 

[hogbrain]

I have been buying HPF for about a year in my IRA. On a total return basis I am just slightly positive due to the share price decline. It is currently selling at aroung 9 to 10% discount to NAV. I intend to hold it for a long time and collect the dividends.

 

[BUM]

Interesting fund Brew. I've added it to my watch list. Thanks.

 

[wildcat]

Speaking of decent deals on closed end funds----FVD is not a bad one. Not like Brew's but yet another dividend oriented fund. Strategy is ok and yield is decent but sells at a 8-9% discount to NAV. But thought I would throw it out there but I think one would better off owning a dividend oriented fund or ETF with lower exp ratios. FVD is around .9

Full disclosure I watch FVD but do not own it

 

[wildcat]

BDT and BDV are two more

 

[BUM]

Mornin' Brewer!

Did you see that story yesterday about utility CEFs? If you missed it I'll find the link. It basically said that (like REITs) the train has left the station.

HPF took a bit of a hit but bounced. Whats your take?

I'm still watching. Havent bought any yet.

 

[brewer12345]

I saw the thing on utility funds. The difference is that utility ETFs are holding the common stock (equity) of the utilities, while funds like HPF hold the preferred stock (bond-like) of uilities and other companies. The ETFs are vulnerable because yield-hog investors have beeen buying up anything that pays fat dividends, and to many (myself included), it has been overdone. If the long bond keeps spiking, you will see some of the air come out of dividend strategies.

The same thing affects HPF and other holders of preferred stock, since the underlying asset is bassically a junk or marginally investment grade bond. However, you get paid a LOT more yield and you get to buy the portfolio at a discount to NAV (unlike ETFs of any kind).

The thing with HPF is that you have to be at least moderately sanguine on the utility industry as a whole and comfy with a wad of credit risk and some interest rate risk to buy it.

 

[mikew]

Stupid questions
In traditional stock/bond portfolio allocation, where would you put prefered stock?

In a book I read, Ben Stein placed it in stock. But it seems to behave like a bond like brewer said.

If it should be classified as a bond, could it substitute for corporate bonds?


Mike

 

[mikew]

Don't know what eveyone thinks about ben stein but here is his list of close ended preferred stock funds
BPP
DNP
FFC
HPI
HPF
HPS
JTP
JPS
JHP
PFD
PFO
PSY

Additionally he has these listed as funds that invest entirely in securities taxed at the dividend rate (preferred and ordinary stock).
PDF
PDT
DIV
PGD
PPF

 

[brewer12345]

Stupid questions
In traditional stock/bond portfolio allocation, where would you put prefered stock?

In a book I read, Ben Stein placed it in stock. But it seems to behave like a bond like brewer said.

If it should be classified as a bond, could it substitute for corporate bonds?


Mike

Preferreds are technically stock, but they behave like subordinated bonds. When you see "preferred stock" think "bonds".

 

[Mr._johngalt]

Don't know what eveyone thinks about ben stein but here is his list of close ended preferred stock funds
BPP
DNP
FFC
HPI
HPF
HPS
JTP
JPS
JHP
PFD
PFO
PSY

Additionally he has these listed as funds that invest entirely in securities taxed at the dividend rate (preferred and ordinary stock).
PDF
PDT
DIV
PGD
PPF

PSY is "closed-end" but still "preferred" . Hmmm?

JG

 

[Mr._johngalt]

Preferreds are technically stock, but they behave like subordinated bonds.  When you see "preferred stock" think "bonds".

Yep!